IVY WALLACE, ET UX. v. EMPLOYERS MUTUAL CASUALTY COMPANY

DECEMBER 07, 1983

IVY WALLACE, ET UX. v. EMPLOYERS MUTUAL CASUALTY COMPANY

BEFORE BROOM, DAN LEE AND PRATHER

PRATHER, JUSTICE, FOR THE COURT:

Ivy and Merelene Wallace, plaintiffs below and appellants here, were the owners of a $26,000 contents coverage insurance policy issued by the defendant, Employers Mutual Casualty Company, covering the contents of a restaurant owned by the Wallaces known as the Western Way Station located in Jackson, Mississippi which burned.

This action was brought by the Wallaces to recover the proceeds. The insurance company defended on the grounds that the fire was the result of arson committed or caused to be committed by the Wallaces, that the Wallaces forfeited their rights to the proceeds by false swearing and misrepresentation, and that the coverage was suspended due to

an increase in moral hazard. From a jury verdict for the defendant, the Wallaces appeal. We reverse and remand for a new trial.

The questions raised by the Wallaces on appeal are:

(1) Whether the court erred in permitting the deposition of Stuart D. Abshire to be introduced into evidence;

(2) Whether the court erred by allowing appellee to cross-examine Merelene Wallace regarding a written statement she signed which was not produced pursuant to discovery requests;

(3) Whether the court erred in submitting the defense of increased hazard to the jury; and

(4) Whether the court erred in denying a new trial on the basis that the verdict was against the overwhelming weight of the evidence.

In May and June, 1978, Ivy and Merelene Wallace leased a building located at 1209 West Northside Drive, Jackson, Mississippi, from Stuart Abshire. Abshire had been using the building and premises for his swimming pool construction business. He continued to use a part of the premises despite the fact that the lease instruments purported to give the Wallaces a leasehold interest in the entire lot.

At the time the building was leased to the Wallaces, Abshire owned an insurance policy written by the defendant, Employers Mutual Casualty Company (Employers Mutual) with $10,000 coverage on the building and $10,000 on the contents. The Wallaces had the Employers Mutual agent, Sal Lembo, change the policy to include them. The contents coverage was deleted and the building coverage was increased to $25,000. Abshire later denied authorizing this change. The Wallaces then purchased a $26,000 contents policy written by Employers Mutual from an agency that had purchased the Lembo Agency. This agent advised Abshire that he was going to write some insurance for the Wallaces. Later Abshire took out a new policy with U.S.F. & G. with $10,000 coverage on the contents and $10,000 on the building. Thus, there was $71,000 worth of coverage on the building and contents where the restaurant was located.

To renovate the building for use as a restaurant the Wallaces incurred remodeling and equipment expenses of over $34,000. To finance this expenditure, the Wallaces used $30,000 in personal funds and $15,000 in loans from two different banks. The restaurant opened for business in

October, 1979.

Between the time of the restaurant's opening and its destruction by fire, the relationship between the Wallaces and Abshire became stormy. Chains and locks placed on trash dumpsters by the Wallaces were cut by Abshire as he continued to use the dumpster in his business. A confrontation between them occurred over a portable sign placed on the lot by Abshire. A wooden fence put up by the Wallaces was torn down by Abshire. Threats of bodily harm was made by both sides. Trouble with the sewer system provoked another confrontation. A lawsuit was filed by Abshire asking that the Wallaces be enjoined from obstructing his use of the premises.

On January 19, 1979, Abshire obtained a court order preventing the Wallaces from obstructing his access to the leased premises. On January 25, 1979, Abshire discussed the over-abundance of insurance coverage with the fire marshall and deputy fire marshall indicating that he believed the building was going to burn. On January 26, 1979, the Wallaces were notified that their $26,000 contents policy would be cancelled effective February 9, 1979. The building housing the restaurant burned on January 26, 1979.

On the night of the fire Merelene Wallace went to the restaurant a little before 12:00 midnight to close up. Normally her son performed this task but was not available on this particular night. She locked the doors behind her and took the two cooks home. The route from the cooks' home to Mrs. Wallace's home ran by the restaurant. At trial, Mrs. Wallace testified that she passed by the restaurant on the way home, but that she did not stop. Mrs. Wallace arrived home sometime between 12:30 and 12:45 a.m. The fire was reported to the fire department at 12:30 a.m. Mrs. Wallace was notified of the fire at about 1:00 a.m. by a phone call from her brother.

On January 30, 1979, the Wallaces met with Don Hicks, an arson investigator of twenty-two years experience hired by the attorney representing Employers Mutual. In a statement taken by Hicks, Merelene Wallace represented that after she dropped the cooks off at their homes, she drove back by the restaurant. She noticed an old blue car parked nearby, and pulled into the restaurant parking lot to investigate, but found no one there. This statement, consisting of three pages, was signed by both Ivy and Merelene Wallace. The last sentence of the statement acknowledges that they read the statement and that its contents were true. Both plaintiffs

denied that they were permitted to read the statement and further claimed that they were not allowed to have a copy.

On March 21, 1979, an examination under oath was taken by Merelene Wallace pursuant to the provisions of the insurance policy. In that examination, Mrs. Wallace admitted being in the restaurant sometime after 12:00 midnight on the night of the fire. She stated that she arrived back at her house at about 1:00 a.m. after she had taken the cooks home.

An investigation of the burned premises by Hicks revealed the existence of pour or burn patterns located in a storage area in the central section of the restaurant. It was his expert opinion that these pour patterns were caused by a hydrocarbon liquid, such as gasoline, kerosene, alcohol or acetone. We concluded that the fire was the act of an arsonist.

An investigation by the Jackson Fire Department revealed that there was no forced entry into the building. It was completely locked when the firemen arrived on the scene. There were three doors to the restaurant. The plaintiffs and their son had a key to all three doors. Mr. Abshire had a key to one of the doors, but no one else had access to the building. Captain fire ...

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